Sales Tax State Activity Update - February 2004

A Pennsylvania School District Denied Sales Tax Refund

The Pennsylvania Commonwealth Court denied the Crawford Central School District’s request for refund of sales and use tax paid by contractors on property purchased by them in constructing a new school building.

Crawford entered into agreements with contractors for construction of the school, which contained provisions that the contractors would assign the rights to any sales and use tax paid by the contractors to Crawford. The district then filed a claim for refund of sales and use tax paid by contractors on property, including items that upon installation remained tangible personal property or became building machinery and equipment.

The relevant exclusions at issue related to such types of property include the following;

1) the sale at retail or use by the Commonwealth of Pennsylvania or its instrumentalities or subdivisions of tangi-ble personal property, and
2) the sale at retail or use by a construction contractor of building machinery and equipment that are transferred to the Commonwealth of Pennsylvania or its instrumentalities.

All property either remaining tangible or becoming building machinery and equipment was transferred to Crawford by construction contractors pursuant to the agreements. In order for the exclusion to apply to the items remaining tangible personal property used by the Commonwealth or its instrumentalities, Crawford must purchase the items directly. (i.e. billed to and paid by Crawford). In this case, the contractors transferred the items remaining tangible personal property and the Commonwealth concluded that Crawford did not purchase the property directly. Therefore, the exclusion does not apply and no refund of sales and use taxes may be granted. In contrast, building machinery and equipment transferred to Crawford is properly excluded from sale at retail or use by a construction contractor and transferred to the Commonwealth or its instrumentalities.

(Crawford Central School District v. Commonwealth of Pennsylvania, Pennsylvania Commonwealth Court, No. 110 F.R. 2002, 1/2/2004) 02/04

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